This study seeks to study the rate of return to schooling in urban China by addressing two questions: First, have the returns to schooling in China been underestimated? Second, should Mincer earning function be directly applied? The study suggests a modified Mincer earning equation with quadratic term of years of schooling to reflect the differences in average rate of returns to additional year of schooling among various levels of education. The OLS estimates of returns to education are lower than those from the IV approach. The overall returns to education from OLS estimation based on the standard Mincer equation are in the range of 7 percent to 8 percent. The IV approach reports a much higher rate of returns to education, 16 percent for college graduate, based upon the modified Mincer earning equation, while the figure from the OLS estimation is 10.24 percent.
Xu Zhang. "The Rate of Returns to Schooling: A Case Study of Urban China." Proceedings of the New York State Economics Association. vol. 4, September 2011, p. 137-149
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